A planned periodic premium is the amount you told the insurance company you intended to pay each year on a flexible-premium policy, printed on the schedule page. It is a plan. It is not a bill, not a guarantee, and not the amount required to keep the policy in force for life.
Only universal life and other flexible-premium contracts have one. Whole life has a fixed contractual premium. Term has a scheduled premium. Universal life lets you pay more, less, or nothing at all in a given year, and the policy survives as long as the account value covers the monthly cost of insurance and expense charges. The planned periodic premium is simply the number the illustration was built around, usually in the year the policy was sold.
That gap between what you planned and what the policy actually needs is the reason this term matters. Sooner or later a universal life owner receives an annual statement or a carrier letter showing the policy will not last, and a decision has to be made. This page is about that decision and the five options on either side of it.
In This Article
The Decision, Stated Plainly
Here is the moment. You have paid the planned periodic premium faithfully for twenty years. The annual report arrives and shows an account value that has been shrinking, and a projection that the policy will lapse at the insured’s age 81 unless more money goes in. Nothing was done wrong. The policy was illustrated at interest crediting rates that the last two decades did not deliver, and the cost of insurance rises steeply with age.
The decision is not “keep or cancel.” It is a five-way choice, and each branch has a different cost and a different outcome. Before you can choose, you need one document: a current in-force illustration.
Ask the carrier for two versions, and be specific, because carriers will run whichever you request. Version one: what happens if I keep paying exactly the current planned periodic premium. Version two: what premium is required to carry the policy to age 100 at current, non-guaranteed rates, and what premium is required at guaranteed rates. The gap between those two numbers is the real size of the problem. Read how to read an in-force illustration before the numbers arrive, because they are dense.
Do not make any decision from the annual statement alone. It reports the past year. The illustration projects forward, and forward is where the decision lives.
Why the Planned Premium Stopped Working
A universal life policy is an account. Premiums go in. Each month the carrier deducts a cost of insurance charge, based on the net amount at risk and the insured’s attained age, plus administrative and per-thousand expense charges. Interest is credited on what is left. If the account value ever reaches zero and no premium arrives during the grace period, the policy lapses.
Two forces work against the account. First, the cost of insurance rises every year, and it rises steeply after about age 70. Second, policies sold in the 1980s and 1990s were illustrated at crediting rates far above what carriers have paid since. A policy illustrated at 8 or 9 percent that actually credited 3 to 4 percent accumulates a shortfall that compounds for decades.
A third force is less well known. Many carriers have raised cost of insurance rates on in-force blocks of universal life in recent years, within the guaranteed maximums stated in the contract. Those increases have been the subject of substantial litigation. If your policy’s projections deteriorated sharply and you did not change your payments, ask the carrier directly, in writing, whether cost of insurance rates on your policy series have been increased and when. See what cost of insurance charges are.
Understanding which of these three is driving your shortfall changes which option makes sense.
| Option | What you pay | What you keep | Best when |
|---|---|---|---|
| Increase the premium | The amount the illustration requires | Full death benefit | Coverage still needed and affordable |
| Reduce the death benefit | Roughly what you pay now | A smaller policy that lasts | Need has shrunk with the budget |
| Reduced paid-up | Nothing further | A smaller paid-up death benefit | You want out of premiums, not out of coverage |
| Surrender | Nothing further | Cash surrender value, taxable gain possible | No coverage need, no market interest |
| Sell in the secondary market | Nothing further | A lump sum, no death benefit | Age 65+ or impaired health, face above $100,000 |
The Numbers That Bound Your Choices
Four defined premium levels sit around the planned periodic premium, and knowing them prevents expensive mistakes.
The minimum premium keeps the policy in force in the very short term and nothing more. Paying it indefinitely is how policies fail.
The target premium is a commission benchmark set by the carrier, not a funding level. It is frequently mistaken for a recommended premium. It is not one. Read what a target premium actually is.
The no-lapse guarantee premium, where the policy has such a rider, is the amount that keeps a contractual guarantee alive regardless of account performance. Miss it, or pay it late, and the guarantee can be lost permanently even if you catch up. Some contracts allow reinstatement of the guarantee, many do not. This is the single most damaging avoidable mistake in this category. See how no-lapse guarantees work.
The tax limits. Internal Revenue Code Section 7702 sets the maximum you may pay for the contract to remain life insurance for tax purposes. Section 7702A sets the seven-pay test; exceed it and the policy becomes a modified endowment contract, permanently, which changes the tax treatment of loans and withdrawals to a less favorable last-in first-out basis with a possible 10 percent additional tax before age 59 and a half. Before dumping a large sum into an underfunded policy, ask the carrier in writing whether the payment would create a modified endowment contract, and confirm the tax consequences with your CPA. Read what a modified endowment contract is.
Option A and B: Fund It, or Fund Less of It
Increase the premium. If the coverage is still needed and the household can absorb the higher figure, paying what the illustration says is required is the cleanest answer. Ask for the amount required at guaranteed rates, not just current rates, so you are not back in this position in six years. Some owners split the difference and revisit annually.
Reduce the death benefit. This is the option most owners have never been told about. Lowering the face amount reduces the net amount at risk, which reduces the monthly cost of insurance, which can make the current planned periodic premium sufficient again. A $500,000 policy that cannot be sustained may become a $250,000 policy that can be, at the same premium the household is already paying.
There are limits and cautions. Carriers impose minimum face amounts. A reduction may trigger a partial surrender charge in the early years. And a face reduction within the first fifteen policy years can have tax consequences under the Section 7702 rules, so ask before you sign. But for a household whose need for coverage has shrunk along with its budget, this is frequently the best available answer and it costs nothing to price. See how premium optimization works.
Option C, D and E: Stop, Cash Out, or Sell
Stop paying and take reduced paid-up coverage, where the contract offers it. The account value buys a smaller, fully paid death benefit with no further premiums. Nothing more is owed and something still pays at death. This is often better than surrender and better than letting the policy lapse, and it is a nonforfeiture option the carrier must quote on request.
Surrender for cash value. You receive the cash surrender value, which is account value less any surrender charge and any outstanding loan. Gain above your cost basis is ordinary income. If there is a policy loan, a surrender can produce a tax bill larger than the check, which surprises people badly. Ask the carrier for the taxable gain figure in writing and give it to your CPA before you sign anything.
Sell the policy. In the secondary market a buyer takes over the premiums and pays a lump sum now. This is only realistic for insureds generally over about 65, or younger with significant health impairment, with a death benefit typically above $100,000. A settlement is worth exploring specifically when the offer would exceed the cash surrender value, which is common for older insureds whose health has declined since issue.
And the honest counterweight: sometimes none of these is right and the answer is to keep the policy exactly as it is. If a surviving spouse depends on the death benefit, if the face amount is small, or if the insured is healthy and an offer would be low, leave it alone. Skipping a premium is almost never a plan; it is how a policy dies by accident. If you want the two numbers side by side, surrender value and market value, a free policy review produces both. Pine Lake Legacy does not purchase policies and does not give tax advice; we provide education and a valuation. Send the policy cover page and the most recent annual statement, or call (732) 978-9575.
Frequently Asked Questions
Is the planned periodic premium the amount I have to pay?
No. It is the amount you indicated you intended to pay on a flexible-premium policy. The policy stays in force as long as the account value covers monthly charges, so you can pay more or less. The catch is that paying only the planned amount is frequently not enough to carry the policy for life, which is why the annual report matters.
Why is my universal life policy failing when I paid every year?
Usually three causes stacked together: the illustration assumed crediting rates far higher than carriers actually paid, the cost of insurance rises steeply after about age 70, and some carriers have raised cost of insurance rates on in-force blocks within contractual maximums. Ask the carrier in writing whether rates on your policy series were increased and when.
Can I just pay a large lump sum to fix it?
Sometimes, but ask first. Internal Revenue Code Section 7702A sets a seven-pay test, and exceeding it makes the contract a modified endowment contract permanently, changing the tax treatment of loans and withdrawals. Ask the carrier in writing whether a specific payment would create one, and confirm the consequences with your CPA before sending money.
What is the difference between the planned premium and the target premium?
The planned periodic premium is what you said you would pay. The target premium is a carrier-set benchmark that determines agent commission. It is not a recommended funding level and it does not guarantee anything. Owners routinely mistake it for the right amount to pay, which is one reason so many policies end up underfunded.
Should I reduce the face amount instead of paying more?
It is worth pricing. Lowering the death benefit reduces the net amount at risk and therefore the monthly cost of insurance, which can make your current payment sufficient again. Watch for carrier minimum face amounts, possible partial surrender charges, and tax consequences of a reduction in the first fifteen policy years. Ask the carrier to quote it.
When does selling the policy make sense?
Generally when the insured is over about 65, or younger with meaningful health impairment, the death benefit is above roughly $100,000, the coverage is no longer needed, and an offer would exceed the cash surrender value. It rarely makes sense for small policies, healthy insureds, or coverage a surviving spouse still depends on.
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Related Reading
- What Is A Target Premium
- What Is Premium Optimization
- Skip A Premium Consequences
- What Is An In Force Illustration
- What Is A No Lapse Guarantee
- What Is A Modified Endowment Contract
- What Is Cost Of Insurance
- How Much Is My Policy Worth
Pine Lake Legacy does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.